September Was a Bad Month for the S&P 500 and October Could Be Worse

Historically, September is the worst month for stocks. And September 2022 continued that tradition with heavy selling sending the S&P 500 to its June lows and re-entering bear market territory, which is defined as a drop of 20% or more from most recent highs. While September’s unprecedented sell-off was bad, October could be even worse.

When Will the Stock Market Bottom?

Global stocks have been experiencing a broad-based sell-off with the S&P 500 down 23% from its January peak and the Dow Jones Industrial Average flirting with a bear market. Stocks have been swooning since U.S. Federal Reserve Chair Jerome Powell said that the central bank will do whatever it needs to in order to tame runaway inflation. That means more supersized rate hikes, which should help tame inflation, but it could also slow economic growth and tip the economy into a recession.

During the opening weeks of October investors will be focused on key economic data, including U.S. September jobs and inflation reports. These reports come out just as third quarter earnings season kicks off.

If inflation doesn’t come down as much as expected, more aggressive rate hikes are in the cards. But how many more and how high will the bank’s overnight lending rate go? The Fed said it sees peak fed-funds rate topping 4.5%. Others see the Federal Funds rate peaking at 4.75% in 2023.

How the Federal Reserve raises its hikes could dictate how the markets respond. If the Federal Reserve is more dovish (raising interest rates more gradually) the markets are expected to rise. A more hawkish Federal Reserve, though, could lead to more pain for Wall Street and Bay Street.

While September is the worst month for stocks, October is the worst month for one-percent one-day gains or losses in the S&P 500. And once-reliable technical indicators are not so reliable right now. The S&P 500 fell below its mid-June low of 3,666 on Friday, September 23; a low many believed would hold. This was the first time in history that the S&P 500 has hit a new low after erasing more than half of its losses.

Where could the S&P 500 end up? Some point to the S&P 500 falling to 3,200, the lowest level since July 2020 and almost six percent below record pre-pandemic levels.

The markets may be in uncharted waters with stocks tumbling, but the outlook remains bullish with industry analysts expecting the S&P 500 to rebound close to 26% over the next 12 months.

But, as we saw with stocks recently breaking below June’s expected hold, analysts can get it wrong.

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A week of heaving selling in late September sent U.S. stocks to fresh bear market lows and, by all accounts, October could be even worse. Until the Federal Reserve gets control of inflation, investors should brace for ongoing stock market volatility. Fortunately, the trading experts at Learn-To-Trade.com can help teach investors how to profit when stocks are going up, down, or sideways.

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